This is the “Foreword” to the African Economic Outlook 2022
The release of the 2022 African Economic Outlook comes against a backdrop of two major global crises: the lingering COVID-19 pandemic and the Russia–Ukraine conflict. The latter erupted as Africa’s economy was on a path of recovery from the ravaging impact of the pandemic, and it threatens to set back the continent’s promising economic prospects.
The continent risks sliding into stagflation — a combination of slow growth and high inflation. Real GDP is projected to grow by 4.1 percent in 2022, markedly lower than the near 7 percent in 2021. The deceleration in growth highlights the severity of the impact of the Russia–Ukraine conflict on Africa’s economy. This growth will be driven largely by private consumption and investment on the demand side and by continued expan- sion in the services sector on the supply side. The services sector, especially tourism, has shown strong postpandemic recovery and is likely to remain buoyant in the medium term, supported by industry, especially in mining, underpinned by soaring metal prices. Africa’s low COVID-19 vaccination rollout, persistent sovereign debt vulnerabilities, high debt levels, and climate and environmental concerns remain the main threats to medium- and long-term growth trajectories.
Disruptions to global trade and supply chains — primarily in agricultural, fertilizer, and energy sectors — following the Russia– Ukraine conflict and the corresponding sanctions on trade with Russia have tilted the balance of risks to Africa’s economic outlook to the downside. The impact is, however, likely to be asymmetrical. On the one hand, net oil- and other commodity-exporting African countries could benefit from higher prices of their exported commodities. On the other, the impacts on net energy-, food-, and other commodity-importing countries, are concerning as higher food and energy prices will exacerbate inflationary pressures and constrain economic activity. Vulnerable populations, especially in urban areas, will bear the greatest burden of rising food and energy prices, and in the absence of measures to cushion the impact, this could stoke social tension across the continent.
An urgent countercyclical policy response such as subsidies to mitigate the impact of higher food and energy costs is therefore needed. But in many African countries, fiscal space remains constrained by the effects of the pandemic. Revenues have not recovered to prepandemic levels, and spending pressure remains elevated. The Bank has thus swiftly responded with a $1.5 billion African Food Crisis Response and Emergency Facility to rapidly ramp up food production and fertilizer supply and alleviate social sector financing constraints in Regional Member Countries. This measure will help address food security–related challenges caused by the Russia–Ukraine conflict and ensure food and nutrition security in the short to medium term.
If the conflict persists, Africa’s growth is likely to stagnate at around 4 percent in 2023. Strikingly, oil-importing countries will gain the most in 2023, with growth increasing from 3.7 percent in 2022 to 4.1 percent, under- scoring the resilience and diversified sources of growth in these economies. But their expansion will be mitigated by the projected slight growth deceleration in net oil-exporting countries, from 4.4 percent in 2022 to 4.1 percent in 2023. In these economies, the supply response to the positive price shock will remain subdued due to persistently weak production capacity in some countries.
By focusing on climate resilience and a just energy transition, the 2022 African Economic Out- look rekindles the Bank’s strong commitment to addressing the continent’s climate vulnerabilities and transitioning toward net-zero by 2050. The transition is inevitable but should not compromise the need for universal access to energy services and the achievement of the Sustainable Development Goals. As outlined in the report, Africa is the least climate-resilient region in the world, with high vulnerability to climate change and low readiness for adaptation to climatic shocks. Yet it has some of the lowest per capita climate finance inflows in the world. This is at odds with the tenets of true climate justice, which suggests that Africa is owed almost 10 times the global climate finance it received from 2016 to 2019.
The report thus lays out arguments for sustain- able development and fairness for a just global energy system and examines low-carbon transi- tion pathways and new opportunities for Africa’s sustainable growth anchored on its resource endowment. It calls for candid discussions on the current lopsided global climate finance architecture, outlines ways for reforms, and maps existing sources of climate finance targeting the continent’s needs and gaps. It further examines innovative cli- mate finance instruments to build resilience and a just energy transition at the international, regional, and national levels for the benefit of the continent.
The good news, though, is that things are moving in the right direction. During the 26th United Nations Climate Change Conference of the Parties (COP26) in Glasgow in November 2021, representatives from nearly 200 coun- tries agreed on further actions to curb carbon emissions and additional funding — especially for adaptation — for low- and middle-income coun- tries. But given the scale of resources needed to meet Africa’s Nationally Determined Contribution targets—estimated at $118.2–$145.5 billion a year until 2030, more concrete policy actions will be required to close Africa’s annual climate finance gap. The upcoming COP27 in Sharm El-Sheik, Egypt, offers an opportunity for African leaders and stakeholders to reinforce the call for a renewed global commitment by advocating for greater and firm support to build climate resil- ience and ensure a just energy transition on the continent, leaving no one behind.
In view of the low climate finance resource flows to the continent, this year’s African Economic Outlook also offers innovative perspectives on how African countries can successfully navigate the ongoing socioeconomic challenges and rising geopolitical conflicts to avoid a triple crisis of sluggish economic recovery, increased energy deficits and inequality, and high climate vulnerabilities. Although global partnerships will be crucial to addressing these challenges, African countries need to do more advocacy work and combat COVID-19 vaccine hesitancy. The report also highlights the importance of supporting domestic pharmaceutical industries and promoting industrialization, which will drive long-term economic growth and sustainable development. Coun- tries also need to take bold steps to strengthen public financial management, including of climate finance resources; reform fossil fuel subsidies; promote transparency and accountability in debt contraction; improve public service delivery; develop well-tailored domestic resource mobilization instruments; improve tax administration; and create an environment to mitigate private invest- ment risks for sustained long-term growth and employment creation.
With bilateral and multilateral development partners, the private sector, and African governments working together, the continent will emerge stronger from the socioeconomic disruptions brought about by the triple effects of the COVID- 19 pandemic, the Russia–Ukraine conflict, and climate change.
The download the full report, click here.
Dr. Akinwumi A. Adesina is the President of the African Development Bank Group